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Australian Dollar Outlook: The RBA Delivers, Will the Fed?

Australian Dollar Outlook: The RBA Delivers, Will the Fed?


Australian Dollar Forecast: Neutral

  • The Australian Dollar has found some legs on improving rate differentials
  • The RBA have done their job and now it’s the Fed’s turn to ponder policy
  • Commodities are presenting some mixed messages. Will AUD/USD go higher?

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The Australian Dollar made a 1-month peak last week in the aftermath of the RBA’s surprise hike of its cash rate target by 25 basis points to 4.10%.

The move underpinned the Aussie on Tuesday and then later in the week the US Dollar weakened more broadly to boost AUD/USD.

In the accompanying statement on monetary policy, the RBA said, “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”

The interest rate futures market is looking at a pause in July and has around an 80% chance of another 25 bp lift at the August monetary policy meeting.

1Q quarter-on-quarter GDP was also released last week, coming in at 0.2% rather than the 0.3% forecast. The latest read was probably offset with the previous print of 0.5% being revised up to 0.6%.

Annual GDP to the end of December was 2.3%, below the 2.4% anticipated and 2.6% prior. With inflation running at around 7%, this means that the Australian economy has a negative real rate of growth.

On the plus side, the trade surplus continues to add to the bottom line with AUD 11.158 billion rolling in the door during April. It was below the AUD 13.64 billion anticipated but is nonetheless positive. Iron prices and other industrial metals have been recovering since last month’s lows.

The Australian Government’s Department of Agriculture, Fisheries and Forestry have forecast that the wheat, barley and canola harvests will be 34%, 30% and 41% lower respectively over the 12 months ahead.

This comes after several years of bumper crops due to excessive rainfall coming from 8 years of the La Niña weather pattern. Australia’s Bureau of Meteorology (BoM) is forecasting a switch to the drier El Niño pattern starting this southern hemisphere winter.

For AUD/USD price action in the week ahead, the focal point for markets will be the Federal Open Market Committee (FOMC) meeting on Wednesday. The rates market is not expecting a move at the gathering and several Fed speakers stated that a ‘skip’ in hike might be prudent at this time.

Fed Chair Jerome Powell’s comments in the proceeding press conference will be watched closely for clues to the rate path further out. Going into the meeting, the US Dollar might soften on the expectations of the dovish tilt. Once the FOMC is out of the way, it may find some support.

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Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for

Please contact Daniel via @DanMcCarthyFX on Twitter


AUD/USD has made a decent recovery from the 6-month low at 0.6458 seen at the end of May.

To close out last week, it was able to overcome a descending trend line that also coincided with a prior peak at 0.6710. This may indicate that further bullishness could unfold.

Resistance might be at the breakpoints and previous peaks in the 0.6780 – 0.6820 area.

A clean break above 0.6740 would place the price above all short, medium and long-term daily Simple Moving Averages (SMA) which may suggest that bullish momentum may evolve.

The Bullish Engulfing Candlestick formation proved to be a salient signal on this occasion.

Support could be at the breakpoint of 06574 and 0.6565 or the recent low of 0.6458.

Further down, support may lie at the prior low of 0.6387 and the nearby Fibonacci level of 0.6381. The latter is the 78.6% Fibonacci Retracement of the move from the October 2022 low of 0.6170 to the peak of 0.7158 seen in February this year.


--- Written by Daniel McCarthy, Strategist for

Please contact Daniel via @DanMcCarthyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.